News Tamil Nadu

Why Are Start-Ups Leaving Dravidian Model Tamil Nadu To Bengaluru?

January 24, 2025
The Commune

With Wheelocity’s announcement to relocate its base from Coimbatore, Tamil Nadu, to Bengaluru, Karnataka, it becomes the second startup to make such a move. Previously, Arcana, another startup, had announced its decision to shift its operations, including its product, business, engineering, and support, to Bengaluru.

It is a setback for the state as Wheelocity, a logistics and supply chain firm, made a significant shift in its business strategy by relocating its base from Coimbatore, Tamil Nadu, to Bengaluru, Karnataka. The company transitioned from a B2B model to a B2C approach, focusing on fresh commerce delivery to India’s underserved semi-urban and rural markets. To support this change, Wheelocity raised $15 million in November 2024 through a mix of debt and equity funding, led by Lightspeed, with contributions from Alteria Capital, Anicut Capital, and Selvam. This move was part of the company’s larger plan to tap into a massive, yet largely ignored, market of over 800 million people, where access to reliable commerce platforms remains limited. In July 2022, the firm had raised $12 million from Lightspeed, Anicut, and other investors.

Founded in 2022 by Selvam VMS and Senthil Kumar, Wheelocity initially supplied fresh fruits and vegetables to quick commerce companies like Swiggy Instamart, Dunzo, Blinkit, and Zepto. The company acted as an intermediary, collecting supplies from smaller merchants and farmers and delivering them to the largest ecommerce players. However, with this new pivot, Wheelocity began competing with companies like Swiggy and Zepto, with a stronger focus on semi-urban and rural areas.

The company adopted a “phygital” approach, shifting away from being a purely digital application player. Phygital refers to integrating technology with the physical world to create unique, interactive user experiences. Wheelocity now operates a fleet of three-wheeler EVs, which deliver and carry vegetables and fruits to consumers in semi-urban and rural areas.

The firm operated in over 60 dark stores, or pit stops, across central Tamil Nadu, where goods were stored, and commerce was facilitated. The shift of Wheelocity from Coimbatore to Bengaluru, marks a significant loss for the state as the company, which served over one million consumers across 3,500 towns and villages, was poised to expand into 20,000 towns and villages in the next 12 months, with a target user base of 10 million consumers. This move, supported by new funding, highlights the state’s loss in terms of business and job opportunities.

Why Are TN Startups Shifting To Bengaluru?

A recent report from TOI highlights that startups in Tamil Nadu are often seen as more “tortoises” than “unicorns,” reflecting a slower growth pace compared to other regions. Despite being the second-largest economy in terms of gross national income, Tamil Nadu continues to lag behind in the startup scene. Last year was especially challenging, with venture capital funding for startups in the state dropping 44% from the previous year, according to data from Venture Intelligence. This marks the lowest funding since 2020, even as national funding saw a recovery in 2024.

Arun Natarajan, founder of Venture Intelligence, acknowledges that while Tamil Nadu’s funding ecosystem is underdeveloped compared to other startup hubs, this doesn’t pose a significant issue for the right kind of entrepreneurs. Many startups have demonstrated that founders can easily reach out to venture capitalists (VCs) in other cities for funding. However, due to a lack of local seed capital and the more conservative nature of Tamil Nadu’s entrepreneurs, startups here tend to approach external investors much later than those in cities like Bengaluru or NCR.

The absence of role models, particularly in the consumer sector, is another challenge, according to Natarajan. While founders like Girish Mathrubootham have successfully scaled B2B software ventures, there are fewer success stories in the consumer-focused, cash-burning startups like Swiggy or Zepto, which take years to turn profitable. Moreover, there is a lack of local investors willing to back such ventures.

According to data from Tracxn, just over 250 startups in Tamil Nadu have raised Series A funding or beyond, and around 10 startups have reached unicorn status. This includes companies like Uniphore, Freshworks, Chargebee, and Zoho, but is still far fewer compared to other startup hubs like Bengaluru and Mumbai. Most of Tamil Nadu’s ventures are B2B-focused, primarily working in enterprise applications and financial services.

I.A.S. Balamurugan, managing partner and co-founder of Anicut Capital, emphasizes that Tamil Nadu’s startup ecosystem needs to evolve beyond just funding. While a few software and fintech firms in the state have received significant capital, Balamurugan hopes to see the growth of sectors like manufacturing tech and automobiles. He advocates for an ecosystem that supports both profitable and risky startups, allowing them to fail if they’re not viable businesses. Without a risk-taking mentality, the ecosystem will struggle to nurture high-potential ventures.

Arvind Subramaniam of Enlighten Capital, a micro-VC, believes that while Tamil Nadu startups have traditionally been conservative and reluctant to raise external capital, the situation is changing. Entrepreneurs are becoming more open to funding as they gain exposure to other hubs, and former employees of successful startups are now starting their own ventures with seed capital from experienced founders.

Sivarajah Ramanathan, CEO of startupTN, points out that Tamil Nadu’s startup ecosystem has a lower failure rate compared to other regions. He believes that alternative funding sources, such as debt or a company’s turnover and profitability, should also be considered. Ramanathan is optimistic about the future of the state’s ecosystem, noting that efforts are underway to improve access to funds. In the past six months, the state has facilitated 90 crores in cumulative funding.

An executive from a well-known startup investor firm suggests that their philosophy aligns more with slow, steady growth—like the tortoise—rather than the pursuit of unicorn status. This mindset, shared by some Tamil Nadu startups, raises the question of whether these “tortoises” will ultimately win the race over the “unicorns.”

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